New Zealand might have escaped the worst of the global COVID-19 pandemic, but for many local businesses their cash flow did not emerge unscathed.
Better adoption of modern technology is critical in the fight for better cash flow, and that means trying to digitise and transform at every level of the organisation – right down to something as small (yet so often problematic) as your invoices.
But how can you digitally transform your invoices, and what are the benefits of electronic invoicing?
What does ‘electronic invoice’ even mean?
Electronic invoicing, also known as e-invoicing, digital invoicing and sometimes online invoicing, does what it says on the tin: converts paper or PDF invoices into an interactive, digital format.
It is a type of automation. Instead of manually inputting data into a letter or PDF and sending it to your buyers, you can automatically generate invoices with all the correct information straight from your accounting system (i.e. Xero) and forward them to your buyer’s system via a secure, encrypted network run by international interoperability framework Peppol.
By combining this technology with the likes of POLi, customers can even pay their bills right then and there within the invoice.
E-invoice vs. online invoice
We use the term e-invoice and online invoice a little interchangeably in this article, but there is a difference between a true electronic invoice and a regular online invoice.
The former is what we’re talking about today – a highly automated, interactive invoice sent from one accounting system to another. A regular online invoice can often be generated in an accounting system as well, but must be sent via email and lacks the interactivity and some of the automation that makes e-invoicing so useful.
What’s the point in e-invoicing?
The point of e-invoices, like most forms of automation, is to reduce the need for repetitive, menial data entry and free up your time to work on more value-adding activities.
While we’ll talk about the full list of e-invoicing benefits just below, in short they improve the time-efficiency of creating and sending invoices, and can improve accuracy and security too.
Using e-invoices to fight COVID-19
In the business world, one of the biggest victims of the pandemic has been cash flow. Organisations up and down the country have had to tighten their belts and run as lean as possible in order to cut costs.
Unfortunately, cost-cutting can often exacerbate common invoice-related problems such as slow or inaccurate payments.
According to Xero’s director global strategy for APAC, Joanne Stanyer, it takes an average of 24 days for an invoice to be paid, and most invoices are paid nine days late. But in our current economic climate, 24 days can be the difference between relative freedom and a level three (if not four) lockdown.
And that’s why getting paid faster matters. If you can unlock the cash that is tied up in credit, your business will be better positioned to roll with the economic waves (i.e. investing rapidly in new technology, such as remote working) or to take advantage of new opportunities (i.e. pivoting business models to meet changing consumer demands).
Even the government has turned to e-invoices
We should point out that electronic invoicing solutions are not some fringe technology, nor a fad. It is a proven concept that even the New Zealand government has adopted.
In 2019, the Labour government announced it was moving to e-invoicing as part of its Single Economic Market agenda in partnership with Australia. Participating agencies pledged to pay invoices of up to $1 million in ten days or less using the new electronic-first system. The only way this would be even remotely possible is by greatly streamlining and automating their payment system using e-invoice technology.
What are the benefits of electronic invoices?
1. Faster to pay
If you make it easier for customers to pay you, logic tells us that customers are going to pay you more swiftly. With e-invoices, you’re sending accurate, interactive invoices right to your customer’s own accounting system where they can pay it then and there.
According to Xero’s research, customers that issue online invoices (with a payment option such as POLi included) see as much as a 43% reduction in average debtor days.
2. Better for your buyers
E-invoices aren’t just easier for buyers because they include a payment option – they are designed to help invoices talk with a common language.
Instead of opening a letter and having to manually enter the invoice details into their system, your customers have all the information in their platform already, in the language that their system can read. It streamlines your end, it streamlines theirs.
3. Cheaper to process
By reducing the time required to make and process invoices, you’re also making them cheaper.
According to the NZ government’s NZBN website, paper invoices cost about $25.67 to process. PDFs, meanwhile, cost $23.01(around 10% cheaper). And digital invoices? $7.63, or 70% cheaper.
4. More secure
If you’re sending letters in the mail, something could always go wrong. Even emails pose a risk, as you never know when an overzealous spam filter will suddenly trap an important message.
When online invoices are sent from system to system, they are transferred first through Peppol’s encrypted network to help prevent tampering, then appear in exactly the right place at exactly the right time.
Already these small steps reduce a number of the risks associated with transferring vital financial information through potentially unsafe third parties.
- Bonus benefit: When generating invoices is automated, there’s also less opportunity for someone to input the wrong information, thus committing fraud (whether intentionally or by accident).
5. Less chance of making errors
Data entry is hard, especially if there’s a lot of it to be done. No matter how qualified the staff member, there’s always a chance they’ll make an honest mistake. This might not be related to fraud as we talked about above, but simply just the wrong number – perhaps a decimal in the wrong spot, a typo, incorrect totals, and so on.
Automating this data entry process mitigates the chance such an error will take place, further ensuring that the amount you are paid is the amount you are owed.
6. Easier to track
An additional benefit to automating financial data entry is that the information is placed into your analytics system as well.
We all know the importance of tracking incomings and outgoings – especially in today’s tumultuous economy, where running lean absolutely requires a clear bird’s-eye view of organisational cash flow. So, having all of your payment information inputted automatically into the system will help you monitor your invoices, payment deadlines, totals, and any other metric that relates to these factors.
Are there disadvantages to e-invoices?
There are no disadvantages as such to e-invoicing, but there are a few requirements that may define whether or not your company can use them.
To summarise these:
- E-invoices can only be sent within NZ (for now). Anyone with international clients will need to continue to use regular invoices.
- Your customers need to be registered to receive them. See below on getting started.
- If your customer can’t receive them, you can only automate your end of the invoice (they will receive theirs via email).
How to get started with e-invoicing in New Zealand
Ready to get started with e-invoicing? You’ll need your NZBN and an accounting service provider that supports Peppol e-invoices.
New Zealand uses NZBNs to help organisations that support e-invoices find each other. But not every accounting system supports this technology so you’ll need to check whether your clients are registered, and discuss with them your plans to make the switch.
Setting up easy payments within your e-invoices
For those of you using Xero, you can make customers’ lives even easier by enabling them to pay their bills right there in the invoice.
POLi is a Kiwi-owned low-fee payment portal that enables customers to make online payments using their bank details – no credit card required, which means no credit card fees either.
Linking POLi with Xero adds a payment button to every invoice which your customers can click to quickly log into their bank and pay the invoice immediately.
Ready to streamline your invoices? Get started with POLi and Xero today.